Hawker revealed last week that its Chapter 11 proceedings could result in its three pension plans being handed off to the federal Pension Benefit Guaranty Corp., which insures corporate pensions but only up to certain limits.

Salaried employees especially are asking about just how much money they have now.

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Less than a week before Hawker filed Chapter 11 on May 3, those employees received a report from Hawker on the health of the pension plan for salaried employees. That report said the plan was 83.19 percent funded, as of a valuation date of Jan. 1, 2011. The funding level was listed as 84.23 percent for 2010 and 98.84 percent for 2009.

But according to information from the PBGC, Hawker’s three plans combined are currently only 56 percent funded.

Hawker declined to speak on the record about its Chapter 11 proceedings and could not provide a current funding percentage for the individual plans in time for inclusion in this article.

Should the plans be turned over to the PBGC — which is listed in the Chapter 11 filing as Hawker’s largest unsecured creditor — some employees could be looking at steep drops in their pension checks. The PBGC has caps on what it will pay individual retirees.

It’s a good example, says John Barton of Center Pointe Wealth Management, of why there is no such thing as over-planning for those concerned about their retirement.

“At this point, if I was an employee, I’d want a best-case scenario and a worst-case scenario,” Barton says. “Prepare for the best, but plan for the worst.”

Sacrificing control

PBGC’s yearly payment cap is just under $56,000 for a 65-year-old with no survivor benefits.

But this retiree took early retirement and has his wife listed as a survivor benefactor, both circumstances that curtail what PBGC will pay. He currently gets a pension of $6,000 a month, $72,000 a year.

Under the PBGC he would make only about half of that.

PBGC spokesperson Marc Hopkins says the goal will be to help Hawker emerge from bankruptcy with its pension plans still in place. But, he stresses, if the plans are turned over to PBGC, retirees will still get benefit checks.

Hopkins says the court is expected to announce as early as Friday the members of the unsecured creditors committee as part of the bankruptcy proceedings, and he expects PBGC will likely be one of them.

In Hawker’s annual report to the U.S. Securities and Exchange Commission last month, it stated its pension plans were $492.9 million underfunded on Dec. 31, 2011, compared with $351.1 million underfunded at the end of 2010.

Hawker also said that its 2011 reassessment of pension and other postretirement plans “resulted in a net $137.6 million decrease in total equity, which was primarily driven by poor performance of the underlying investments.”

It doesn’t say what those investments were, but broader market indexes didn’t perform that badly. The S&P 500 was essentially unchanged from the beginning of 2011 to the end. The Dow Jones industrial average rose 5.53 percent.

According to information from PBGC, Hawker’s three pension plans have $769 million in assets to cover $1.4 billion in benefits. If Hawker ended the plans, PBGC would pay $533 million of the $611 million shortfall.

Jeff Breault, a financial adviser with Carey, Thomas, Hoover & Breault Inc., says the whole scenario goes to show the inherent risk people run with a defined benefit plan.

“The cost of that is that you do not have control, and it’s not necessarily guaranteed,” he says.

PENSION TENSION
According to information Hawker submitted in April to the U.S. Securities and Exchange Commission, here is what the company expected its pension plan payments, both company and employee contributions combined, would be during the next several years.
2012 — $52.0 million.
2013 — $53.7 million.
2014 — $55.8 million.
2015 — $58.3 million.
2016 — $60.8 million.

Daniel McCoy covers aviation, manufacturing and automotive.

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